This report offers strategic and actionable guidance to policymakers in strengthening their access to finance policies for small and medium enterprises (SMEs). This report emphasizes the need to improve the enabling environment for SME debt and equity financing. It outlines a roadmap of eight key actions to guide policymakers in achieving this. While such reforms are necessary, they are often insufficient to fully address SME financing constraints. Targeted financial programs thus remain essential to bridge the financing gaps effectively. This report outlines seven actions to improve the design and implementation of these interventions to maximize their impact and the effective use of public funding. This report also underscores the importance of a tailored approach to address the distinct challenges faced by specific SME segments, particularly those of women-owned (and led) SMEs, SMEs in agriculture, SMEs in fragile and conflict-affected states, and those seeking financing for climate change adaptation and mitigation.
Authors
Organizations mentioned
- Disclosure Date
- 2024/09/30
- Disclosure Status
- Disclosed
- Doc Name
- Boosting SME Finance for Growth : The Case for More Effective Support Policies
- Pages
- 96
- Product Line
- Advisory Services & Analytics
- Published in
- United States of America
- Rel Proj ID
- 1W-Guidance Note On Sme Financing -- P179005
- TF No/Name
- TF0C2811-F4D - Strengthening FCI Approach to SME Financing
- Unit Owning
- Prosperity-FCI-Finance-GD (EFNDR)
- Version Type
- Revised
- Volume No
- 1
Table of Contents
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- _Hlk174172963 92
- Foreword 11
- Acknowledgments 13
- Abbreviations 14
- Executive Summary 15
- The Enabling Role of Access to Finance for Productivity, Growth, and Resilience 21
- The Evolution of SME Financing 23
- 2.1 Debt Financing 23
- 2.1.1 Bank Lending for SMEs 23
- 2.1.2 Fintech Lenders 25
- 2.1.3 Asset-Based Financing 25
- 2.1.4 Capital Markets 26
- 2.2 Equity Financing for SMEs 27
- 2.2.1 Equity Financing for Innovative Firms 27
- 2.2.2 Equity Financing for Mature SMEs 28
- 2.3 Summary 29
- A Road Map for Enabling SME Finance 30
- 3.1 Action 1. Continue Enhancing the Availability of SME Credit Information 30
- 3.2 Action 2. Complete the Enabling Environment for Asset-Based Financing, Including the Implementation of Movable Collateral Registries 31
- 3.3 Action 3. Overhaul Insolvency Regimes 32
- 3.4 Action 4. Complete the Enabling Environment for Alternative Sources of Financing 32
- 3.5 Action 5. Foster Competition 35
- 3.6 Action 6. Develop the Enabling Environment for Equity Financing 35
- 3.7 Action 7. Enhance Consumer and Investor Protection 37
- 3.8 Action 8. Establish Robust Foundational Infrastructure 38
- Toward a More Effective Use of Targeted Public Interventions 39
- 4.1 Action 1. Enhance Data Availability and Diagnostic Analyses to Ensure Outreach to Underserved SMEs 41
- 4.2 Action 2. Emphasize Financial Additionality and Private Capital Mobilization as Clear Objectives of Targeted Interventions 42
- 4.3 Action 3. Deploy Concessional Financing Sparingly 43
- 4.4 Action 4. Leverage Developmental Finance from Donors for Private Capital Mobilization 44
- 4.5 Action 5. Complement Targeted Interventions with Non-financial Support 44
- 4.6 Action 6. Improve the Evaluation of Targeted Interventions 45
- 4.7 Action 7. Improve Coordination, Including by Better Leveraging Existing DFIs, and Ensure Proper Governance 45
- 4.8 Additional Recommendations for the Design of Debt Interventions 46
- 4.9 Additional Recommendations for the Design of Equity Interventions 48
- Selected Topics 51
- 5.1 Women-Led SMEs 51
- 5.2 Financing Investments in Mitigation and Adaptation to Climate Change for SMEs 53
- 5.3 Financing Agri-SMEs 57
- 5.4 SMEs in FCV countries 60
- Conclusion 63
- Appendix A. Misallocation of Firm Financing 65
- Appendix B. Microenterprises 67
- Appendix C. Selected Experiences 69
- Appendix D. Firm Capability and the Connection to Access to Finance 76
- Appendix E. The Principles for Public Credit Guarantees 78
- References 80
- Notes 86
- Figure 2.1 Sources of Financing for SMEs 24
- Figure 2.2 Composition of Debt Financing for SMEs around the World 24
- Figure 2.3 Composition of Equity Financing around the World 28
- Figure 5.1 GHG Emissions around the World 56
- Figure C.1 Number of Listed Companies at the KOSDAQ in Early Days of Development 70
- Table 3.1 Key Sources of Alternative Finance in EMDEs 33
- Table 3.2 Key Sources of Equity Financing in EMDEs 36
- Table 4.1 Targeted Interventions Supporting SME Finance 40
- Table C.1 VC-Backed IPOs at the KOSDAQ 70
- Table D.1 Selected Types of Access to Finance Related Capacity Building Interventions 76
- Table E.1 Coverage Ratios and Pricing Policies around the World 79
- Box 4.1 46
- Lessons Learned from Efficient National Development Financial Institutions (NDFIs) 46